Q+A - What business risks do Maoist rebels pose?

Police and railway officials stand next to an overturned coach of a passenger train which was derailed after suspected Maoist rebels blew up a railway track near Manoharpur, in Jharkhand November 20, 2009.
REUTERS/Rajesh Kumar Sen/Files

NEW DELHI Maoist rebels have stepped up attacks in parts of India this week in response to a planned government offensive, a conflict that could hurt investment plans, particularly in the country's mineral belt. Prime Minister Manmohan Singh has described the insurgency as the biggest internal security challenge. Here are some questions and answers on the insurgency and possible risks to industry and investment.

WHO ARE THE MAOISTS?

The rebel movement started as a peasant revolt in Naxalbari village in West Bengal in 1967. It was initially crushed by the government, but the rebels regrouped in the 1980s. They say they are fighting for the rights of the poor and the disenfranchised.

They now number an estimated 22,000 combatants in more than 180 of the country's 630 districts. They operate across a "red corridor" stretching from the Nepal border to West Bengal and through central India into the southern state of Andhra Pradesh.

The rebels are armed with automatic rifles, shoulder-fired rockets, explosives and mines.

Indian officials say the movement is now spreading to cities and bigger towns where the rebels enjoy support from some educated youth and intellectuals.

HOW BIG IS THE RISK TO INVESTORS?

While the economic impact may be small compared with India's trillion dollar economy, the insurgency and the sense that it is worsening signals that India does not fully control its own territory and adds to risks for companies considering investments.

The Maoists regularly attack railway lines and factories, aiming to cripple economic activity. With the rebels controlling vast swathes of mineral-rich areas, the government has often struggled to transport coal to power and steel companies.

WHAT COMPANIES HAVE BEEN IMPACTED?

The effect of the Maoist insurgency has already taken its toll on business. Work on a $7-billion steel plant by India's third largest steel producer, JSW Steel Ltd, has been delayed.

Frequent rebel strikes have hit production and shipment at firms such as India's largest miner of iron ore, NMDC Ltd's and state-run National Aluminium Co Ltd.

Rebels sided with farmers during violent protests against government moves to acquire farmland for industry, forcing the scrapping of a Tata Motors' Nano car plant and a $3 billion chemicals hub complex in eastern India. Protests by farmers have also delayed work on two separate plants by the world's leading steelmakers Arcelor Mittal and POSCO in Orissa.

WHAT HAS BEEN THE GOVERNMENT'S RESPONSE?

The government has deployed hundreds of state and central police in the country's east to halt the Maoists' advance, but so far has refused to send in the army. The government says it could take up to five years to defeat the Maoists.

(Writing by Krittivas Mukherjee)

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